Assessing systemic risk of Islamic banks during the COVID-19 pandemic crisis

ABSTRACT

We examine the systemic risk (SR) of listed Islamic banks (IB) around the world for the 2005–2020 period. Our research hypothesis states that if IB are resilient to economic crises, we expect a stable pattern of SR for IB across pre- and during international crises. Our empirical results do not confirm this hypothesis. We find evidence that the SR of IB has increased sharply during the subprime and COVID-19 crises. Furthermore, we identify the presence of systematically important Islamic banks (SIIB). These results are robust to different measures of SR and do not depend on a specific region. These findings suggest that the Islamic banking system is vulnerable to downside risk and to the failure of SIIB.

KEYWORDS:

• Systemic risk
• Islamic banks
• COVID-19
• marginal expected shortfall
• measure

JEL CLASSIFICATION:

• G01
• G21
• G32
• G18

Disclosure statement

No potential conflict of interest was reported by the author(s).